UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION. Southern California Edison Company ) Docket No.

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1 UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION Southern California Edison Company ) Docket No. EL MOTION FOR LEAVE TO ANSWER AND ANSWER OF SOUTHERN CALIFORNIA EDISON COMPANY Pursuant to Rules 212 and 213 of the Rules and Regulations of the Federal Energy Regulatory Commission ( Commission or FERC ), Southern California Edison Company ( SCE ) files this Motion for Leave to Answer and Answer to the Protests filed by Alta Wind I, LLC, Alta Wind II, LLC, Alta Wind III, LLC, Alta Wind IV, LLC, Alta Wind V, LLC, CHIPS Alta Wind VI Holding Company, LLC, and Alta Windpower Development, LLC (collectively, Alta Wind ) and the California Wind Energy Association ( CalWEA ). 1 I. MOTION FOR LEAVE TO ANSWER Although Commission Rule 213(a)(2) generally prohibits responses to protests, the Commission has previously waived this Rule and allowed a response when such a response will ensure a complete and accurate record in the case. 2 The Commission also permits responses that assist the Commission in addressing the issues raised in the 1 Motion to Intervene and Protest of Alta Wind I, LLC, Alta Wind II, LLC, Alta Wind II, LLC, Alta Wind IV, LLC, Alta Wind V, LLC, CHIPS Alta Wind IV Holding Company, LLC, and Alta Windpower Development, LLC, Docket No. EL (fld. Dec. 8, 2014) ( Alta Wind Protest ); Motion to Intervene and Protest of the California Wind Energy Association, Docket No. EL (fld. Dec. 8, 2014)( CalWEA Protest ). 2 See, e.g., Delmarva Power & Light Co., 93 FERC 61,098 at 61,259 (2000) (allowing answers to a protest in order to insure a complete and accurate record ); N. Natural Gas Co., 91 FERC 61,212 at 61,767 n.10 (2000) (allowing an answer to a protest to achieve a complete and accurate record ).

2 protests. 3 SCE s Answer achieves all of these goals because it provides factual information and legal authority that rebut certain arguments made in CalWEA s and Alta Wind s Protests information that SCE believes will be useful to the Commission in addressing the merits of this case. As such, SCE requests that the Commission consider and accept SCE s Answer. II. SUMMARY At its heart, the Petition filed by SCE raises issues relating to the Commission s regulatory duty to set national energy policy specifically whether the policy considerations that led the Commission, in Order No. 2003, 4 to include a limitation on liability in Large Generator Interconnection Agreements ( LGIAs ) support a finding that the Commission meant to include all lost profits within the scope of such limitation. When the Commission adopted Order No s limitation on consequential damages, it stated that the adoption of a uniform requirement, made irrespective of state law, would increase regulatory certainty, cap excessive utility rates, and reduce the risk of litigation. The requested declaration is essential to further these important goals and to avoid an 3 See, e.g., Carolina Power & Light Co., 93 FERC 61,032 at 61,068 (2000) (allowing an answer to a protest where the answer would assist in the Commission s understanding and resolution of the issues raised ); Int l Transmission Co., 92 FERC 61,276 at 61, (2000) (accepting an answer to a protest where the answer assists in the Commission s understanding and resolution of the issues in this proceeding ). See Potomac-Appalachian Transmission Highline, LLC, 122 FERC 61,188 at P 23 (2008) ( PATH ) (answer accepted because it assisted decision-making process); S. Cal. Edison Co., 122 FERC 61,187 at P 19 (2008) ( 2008 CWIP Order ) (answer assists decision-making process). 4 See Standardization of Generator Interconnection Agreements and Procedures, Order No. 2003, FERC Stats. & Regs. 31,146 (2003), order on reh g, Order No A, FERC Stats. & Regs. 31,160 (2004) ( Order No A ); order on reh g, Order No B, FERC Stats. & Regs. 31,171 (2005), order on reh g, Order No C, FERC Stats. & Regs. 31,190 (2005), aff d sub nom. Nat l Ass n of Regulatory Util. Comm rs v. FERC, 475 F.3d 1277 (D.C. Cir. 2007). 2

3 erosion of these principles if generators can easily nullify the meaning of the LGIA s limitation on liability. The Commission should rule on the Petition because the Commission not the courts of the 48 continental states applying their respective state laws is in the best position to explain whether, based on a careful weighing of these policy considerations, it intended to prohibit recovery of all lost profits, such as profits on collateral power sales contracts. Alta Wind claims that the Commission should defer review of the Petition to the state courts under the Arkla test for concurrent jurisdiction. 5 The Arkla cases that Alta Wind cites to support this position simply do not apply they typically involve requests for the Commission to review bilateral contract terms that were freely bargained by the parties, or established by a regulator other than the Commission. 6 The link between those types of contracts and the Commission s regulatory and policy-setting responsibilities was too attenuated to justify Commission review. 7 The issue now before 5 E.g., Alta Wind Protest, at pp The Arkla test is found here: Arkansas Louisiana Gas Co. v. Hall, 7 FERC 61,175, reh g denied, 8 FERC 61,031 (1979) ( Arkla ). 6 E.g., Alta Wind Protest, at 9 n.25 citing to Doswell Ltd. P ship, 61 FERC 61,196, 61,731 (1992)( Expertise in contract interpretation -particularly regarding parties intent is within the court s realm ), order denying rehearing, 62 FERC 61,149, 62,069 (1993)( [W]e are leaving the task of determining the parties intent under the Agreements to a forum with expertise with the issues at bar i.e. to a court of competent jurisdiction familiar with contract law issues. ). See also Sierra Green Energy, LLC, ,074, at P25, P29-P33 (2014)(Commission declined to interpret Power Purchase Agreement approved by the California Public Utilities Commission; cited by the Alta Wind Petition, at 7-8). 7 E.g., BG Energy Merchants, LLC v. Crosstex LIG, LLC, 136 FERC 61,098, 61,42 (2011)( While the transactions at issue here are subject to our [Natural Gas Policy Act ( NGPA )] Section 311 jurisdiction rather than our [Natural Gas Act] jurisdiction, NGPA section 311 transactions also rely in large part on private contracts... Resolution of this dispute concerns interpretation of specific language in unique contracts whose terms do not require uniform interpretation to prevent contravention of the relevant public interest. ). See also Questar Pipeline Co., 140 FERC 61,040, at P60 (2012)( There is no need for uniformity of interpretation since the agreements are unique contracts between Questar and QEP ); Sierra Green Energy, 149 FERC 61,074, at P32 ( Sierra [Complainant] also cites no specific Commission policy that it alleges would be violated if PG&E were successful in this action ).sce 3

4 the Commission is a different situation entirely, as it relates to pro forma contractual terms imposed by the Commission, after much policy debate and consideration. 8 Alta Wind requests that the Commission consider public policy concerns in determining how to resolve the issue raised by the Petition. 9 SCE agrees. The best public policy is for the Commission, not disparate state courts, to weigh competing interests and develop national policy by deciding which types of lost profits should be included within Order No s limitation on consequential damages. Alta Wind and CalWEA also mischaracterize the Petition by claiming that SCE is asking the Commission to retroactively modify Articles 18.2 and of the LGIA. 10 This argument relies upon a misinterpretation of Article 18.2 and a misstatement of SCE s position with regard to Article of the LGIA. To arrive at their desired interpretation of Article 18.2, Alta Wind and CalWEA ignore the plain meaning of the words of the Article as well as the Commission s explanation of those very words in Order No With regard to Article , SCE merely asks the Commission to clarify a question relating to the scope of Order No s limitation on consequential damages in light of the existence of Article Resolving a question about how to apply the existing terms of the pro forma LGIA is not the same as changing the pro forma LGIA. 8 Order No. 2003, PP (detailing history). 9 Alta Wind Protest at pp Alta Wind Protest at pp ; see also CalWEA Protest at pp

5 Because the Petition raises issues that directly impact the Commission s regulatory duty to set national energy policy, SCE respectfully urges the Commission to rule on SCE s Petition. III. ANSWER A. Applying the Arkla Test Demonstrates that the Commission Is Better Suited than State Courts to Determine National Energy Policy The history and policy discussions surrounding Order No s limitation on consequential damages demonstrate its connection to FERC s national energy policy goals. 11 However, SCE and Alta Wind disagree on who should decide whether the Commission intended to exclude all lost profits on power sales in Order No s limitation on liability. Alta Wind argues that the state courts of each state should make that determination. SCE, however, believes that the decision about the intent and effect of Order No belongs to the body that issued Order No the Commission. As demonstrated below, the application of the Arkla test in no way supports a dismissal of the Petition. As a preliminary matter, it is not clear whether Arkla even applies. That test is used to determine whether the Commission should resolve disputes that arise under FERC-jurisdictional contracts that are otherwise litigable in state courts. 12 In this case, SCE is not asking the Commission to rule on Alta Wind s claims against SCE under a 11 In Order No (at 906), the Commission explained that it was adopting the limitation to 1) standardize the liability protection, rather than leaving the issue to state law, thus offering greater certainty to Transmission Providers and Interconnection Customers alike ; 2) protect against excessive utility rates by capping damage awards ; and 3) reduce litigation arising from interconnection. 12 Arkla,7 FERC 61,175 at 61,322. See also BG Energy Merchants, LLC, 136 FERC 61,098 at P 36 (indicating that Arkla is applied to disputes that may otherwise be subject to the jurisdiction of another forum). 5

6 specific contract between the parties. Instead, SCE is asking the Commission to clarify the effect of the Commission's Order No. 2003, a matter over which the state courts have no jurisdiction. Even assuming Arkla applies, the factors weigh overwhelmingly in favor of Commission review. Under Arkla, the Commission would consider: (1) whether the Commission possesses some special expertise which makes the case peculiarly appropriate for Commission decision; (2) whether there is a need for uniformity of interpretation of the type of question raised by the dispute; and (3) whether the case is important in relation to the regulatory responsibilities of the Commission. 13 Each of these factors favors Commission review. 1. The Commission Has Special Expertise to Interpret a Provision that It Mandated Be Adopted The Commission clearly has special expertise in explaining whether the scope of Order No s limitation on consequential damages was intended to exclude all lost profits, irrespective of state law. In fact, the Commission is in the best position to answer that question because, with the benefit of input from the full spectrum of the industry, it decided the mandatory terms of the LGIA. This case differs substantially from those cited by Alta Wind in its protest. In those cases, the Commission typically declined to review contract disputes over contract terms set by the parties, or by a regulator other than the Commission such as the 13 Arkla, 7 FERC 61,175, at 61,322. 6

7 California Public Utilities Commission. 14 Interpreting the contracts in those cases would necessarily have required the Commission to determine the intent of parties other than the Commission. 15 For example, in Questar Pipeline Company, the Commission did not review the contract, stating that the Commission does not possess special expertise beyond that of a Utah court... construing the contracts provisions and inquiring into the parties intent is a straightforward matter of contract interpretation that is better left to the state court. 16 The Commission also did not review the contract in BG Energy Merchants LLC v. Crosstex LIG, LLC, stating [t]he Commission does not possess special expertise as to what the parties intended when they negotiated the Agreements. 17 Other cases cited by Alta Wind are similar, involving the Commission s refusal to resolve disputes over contract terms that were not set by the Commission. 18 Here, by contrast, SCE and the Alta Wind parties did not negotiate to include Article 18.2 into the contract. It was a contractual provision that the Commission after due and careful deliberation decided to include in the pro forma LGIAs. 19 Thus, it is the Commission s intent, and not that of the parties operating under state law, that should 14 Alta Wind Protest at p. 9 & n.25 (listing Arkla cases where FERC declined to review contracts that would have required FERC to resolve contract disputes over uniquely negotiated contracted terms); see also Alta Wind Protest, at 7-8 (citing to Sierra Green Energy, LLC, 149 FERC 61,074(2014). In Sierra Green Energy, the Commission declined to interpret a Power Purchase Agreement containing terms approved by the California Public Utilities Commission. Sierra Green Energy, LLC, ,074, at P25, P29-P See sources cited, supra note Quester, 140 FERC 61,040 at P BG Energy Merchants LLC v. Crosstex LIG, LLC, 136 FERC 61,098 at P See sources cited, supra note 6 (citing to Alta Wind s protest, which in turn cited to Arkla cases where FERC declined to review contracts that would have required FERC to resolve contract disputes over uniquely negotiated contracted terms). 19 Order No. 2003, at P

8 define the scope of Order No s limitation on consequential damages. The Commission, and not the state courts, has the greatest expertise in explaining whether the Commission intended to preclude recovery of lost profits on power sales within the scope of Order No s limitation on consequential damages. Notably, in Sierra Green Energy, LLC, 149 FERC 61,074 (2014), which Alta claims is analogous, the Commission did not decide the dispute involving the parties Power Purchase Agreement ( PPA ), which did not include any Commission-mandated contract terms. 20 However, the Commission did rule on the dispute involving whether the utility violated the parties Small Generator Interconnection Agreement ( SGIA ), which was based on the Commission s pro forma agreement. 21 Indeed, the Commission routinely rules on cases involving interpretations of its Generator Interconnection Procedures, LGIAs and SGIAs. For example, the Commission has addressed such topics as whether certain extensions of the commercial operation date were material modifications under its Procedures. 22 It has ruled that the gross negligence or intentional wrongdoing standards in Article 18.1 of the pro forma LGIA, extend to Articles and It has determined whether an interconnection application constitutes a valid interconnection request. 24 These are just a few examples 20 The PPA contained contract terms that were approved by the California Public Utilities Commission. The FERC declined to interpret terms set by a regulator other than itself. Sierra Green Energy, 149 FERC 61,074 at PP 24, 28, Id. 22 Judith Gap Energy LLC Nw. Corp., 125 FERC 61,169 (2008). 23 Virginia Elec. & Power Co., 108 FERC 61,206 (2004). 24 Sw. Power Pool, Inc., 132 FERC 61,137(2010). 8

9 of numerous cases in which the Commission has used its special expertise to interpret the standard terms of LGIAs and SGIAs that it has mandated pursuant to Order Nos and The instant Petition is no different. 2. Uniformity of Interpretation Was a Primary Goal in the Adopting of the Provision at Issue The Petition raises a matter that requires uniformity of interpretation. In implementing Order No s limitation on consequential damages, the Commission explained that the decision to impose a uniform, nationwide limitation on consequential damages was made precisely because state liability statutes vary. 25 This connection to the Commission s national energy policy demonstrates why the Commission should rule on the Petition. The Commission declines to review contracts whose impact would not extend beyond the parties, such as contract terms that the parties freely bargained for. 26 In contrast, many entities would be impacted if the Commission were to decline review here and instead allow state courts to reach differing conclusions concerning the scope of Article 18.2 s limitation on damages. Transmission providers would be subject to different standards of liability depending on their state. It would result in the exact piecemeal coverage that the Commission was trying to avoid in enacting a national standard for the limitation of consequential damages in the first place. 27 Alta Wind tries to portray the dispute as one that is not likely to re-occur or have impacts in the form of higher rates such that the need for uniformity has not been 25 Order No at P See sources cited, supra notes 6 & Order No. 2003, at P

10 demonstrated. 28 Disputes over claims of lost profits are likely to re-occur and indeed already have occurred. 29 Alta Wind claims that SCE is arguing that transmission rates will increase because utilities would be allowed to recover in its regulated transmission rates any award of damages. 30 What SCE and other transmission owners actually have argued is that the risk of consequential damages would lead to higher rates. Such rate increases would result from the need to insure against such claims and the need for higher returns to mitigate the risk. EEI and other intervenors concur that such risks exist absent uniformity. 31 Most importantly, the Commission itself adopted Order No s limitation on consequential damages to counter the risk of increased utility rates The Issue Raised Is Important to the Commission s Regulatory Responsibilities Finally, and most importantly, the issues raised by the Petition are not only important to, but paramount to, to the Commission s regulatory responsibilities in setting national energy policy. Alta Wind first claims that the instant dispute centers on contractual obligations and not regulatory obligations. 33 This argument obscures the fact that the entire interconnection process is now a regulatory obligation. 28 Alta Wind Protest at p See Twin Valley Hydroelectric, 148 FERC 61,127 (2014) (indicating that a FERC ALJ arbitrated a claim for lost profits by an interconnected generator). 30 Alta Wind Protest at p. 10 n For example, the Six Cities intervenors fear that Transmission Providers may overbuild their systems to mitigate against outage risks that might result in lost profit damages to interconnecting generators. Comments on Behalf of the Cities of Anaheim, Azusa, Banning, Colton, Pasadena, and Riverside, California, Docket No. EL , at 5 (fld. Dec. 8, 2014); see also Motion to Intervene and Comments of the Edison Electric Institute, No. EL , at 4 (fld. Dec. 8, 2014). 32 Order No. 2003, P Alta Wind Protest at p

11 Alta Wind next discusses the importance of non-discriminatory treatment. 34 SCE would not sue itself for lost profits if it curtailed its own generation under an LGIA. Thus, prohibiting non-affiliated generators from claiming lost profits on power sales eliminates a risk that exists only because utilities are compelled to interconnect entities that are unaffiliated and would not hesitate to sue. Accordingly such a prohibition would promote, rather than hinder nondiscriminatory practices. Alta Wind next claims that Article 18.2 was purportedly drafted to ensure that transmission providers that also serve as purchasers from their interconnection customers were subject to an enhanced degree of liability in order to ensure that they did not favor their own generation. 35 As discussed infra, this claim is based on a tortured and erroneous reading of the final proviso. If the Commission wanted to promote fair transmission policies and support independent power, it certainly would not have adopted a proviso that discourages utilities from buying power from interconnected generators by imposing greater risk on utilities that make such purchases. Finally, Alta Wind s invocation of public policy confirms that the Commission should rule on the scope of that provision. 36 The state courts are not, and should not, be in the position of deciding national energy policy. SCE urges the Commission to focus on the policies identified in Order No. 2003, and not on the after-the-fact policies cited by Alta Wind, such as encouraging green power. The Commission originally proposed to 34 Id. at p Id. at pp This argument assumes that all transmission owners have their own generation and that they have economic incentives to favor their own generation, neither of which is necessarily true. 36 Alta Wind Protest, at pp

12 include only indemnification and force majeure provisions, but no specific limitation of liability provision. 37 However, the Commission reversed course and ultimately instituted a national standard because it was such an important issue. 38 This decision was carefully made only after the Commission decided that the use of a national standard would achieve its important regulatory policy goals (1) greater regulatory certainty; (2) capping excessive utility rates by capping damage awards; and (3) reducing litigation. 39 A decision whether the proper scope of the limitation on liability the Commission adopted in Order No was intended to be applied the same way nationwide, or should be subject to differences in state law requires a balance of those exact same policies. In contrast, a decision such as a state court decision permitting lost profits from a collateral contract to be recovered under the LGIA would necessarily cast uncertainty in the regulatory process by having transmission providers in some states enjoying greater protection than those in other states, depending on each state s law on consequential damages. It could be extremely complex for multi-state or multi-regional transmission projects that may have multiple generators in different states, and could result in disparate and unpredictable treatment. The Commission sought to eliminate this uncertainty in issuing Order No The Commission also stated that the purpose of 37 FERC Stats. & Regs. 62,560 at 34,184 (2002)( NOPR ). 38 Order No. 2003, at PP Id. at P Id. ( standardizing the liability protection, rather than leaving the issue to state law, it should offer greater certainty to Transmission Providers and Interconnection Customers alike ). 12

13 barring consequential damages was to cap damage awards, and thus reduce the risk of excessive utility rates. 41 But a decision allowing state law to dictate the types of lost profits that may be barred under the LGIA would eviscerate that goal. Finally, the Commission stated that Order No was intended to reduce the risk of LGIA-related litigation. 42 As seen by Alta Wind s state court litigation, a decision allowing state courts to dictate the scope of Order No s limitation on consequential damages would increase, rather than decrease, the risk of litigation. 43 In order to accomplish the regulatory and national policy goals set forth in Order No. 2003, the Commission and not the courts of the 48 continental states should rule on the scope of Order No s limitation on consequential damages. B. The Petition Does Not Seek Modification of Order No or the LGIA Alta Wind and CalWEA advance the argument that the Petition is seeking to rewrite the pro forma LGIA in various ways. 44 They argue that the time for such changes was a decade ago. As shown below, SCE is not trying to rewrite anything. Alta Wind and CalWEA are the ones trying to change the plain meaning of a proviso to Article 18.2 that is not relevant here. And they are seeking an interpretation of the interplay of Article , the same relief SCE seeks, albeit with both sides preferring opposite views on that interplay. 41 Id. 42 Id. 43 Id. ( Finally a goal of this rulemaking is to reduce litigation arising from interconnection, and an express provision in the LGIA limiting liability will have this effect. ). 44 Alta Wind Protest at pp ; see also CalWEA Protest at pp

14 1. Alta Wind and CalWEA Misinterpret the Proviso in Article 18.2 Alta Wind and CalWEA focus primarily on the last portion of Article 18.2: [I]n no event shall any Party be liable under any provision of this LGIA for any losses, damages, costs or expenses for any special, indirect, incidental, consequential, or punitive damages, including but not limited to loss of profit or revenue, loss of the use of equipment, cost of capital, cost of temporary equipment or services, whether based in whole or in part in contract, in tort, including negligence, strict liability, or any other theory of liability; provided, however, that damages for which a Party may be liable to another Party under another agreement will not be considered to be special, indirect, incidental, or consequential damages hereunder. Emphasis added. Alta Wind and CalWEA claim that the Petition requests the Commission modify Article 18.2 by excluding the above emphasized section of Article This assertion is meritless because it relies upon a remarkable mis-reading of the Commission s language in both Article 18.2 and Order No Indeed, it was the irrelevance of the proviso that led to SCE not addressing it in its Petition. In the Commission s discussion of the inclusion of a provision limiting consequential damages in the LGIA, FERC stated in Order No that [t]he Parties remain liable for any liquidated damages payable, and any damages for which a Party may be liable to the other Party under another agreement. 46 This statement, and the language in Article 18.2, simply provide that Article 18.2 s limitation of liability under the LGIA does not impact the liability of a party that is liable to another party for 45 Alta Wind Protest at 16; see also CalWEA Protest at p Order No at P 906 (emphasis added). 14

15 damages resulting from the breach of another agreement. In other words, if Party A and Party B are parties to an LGIA and also are parties to another agreement, neither party can use Article 18.2 of the LGIA as a shield from damages resulting from their breach of the other agreement. As Pacific Gas and Electric Company explained in its comments, a party to the LGIA remains liable to the other part(ies) for damages based on the alleged breach of that other agreement, but cannot be held liable for lost profits allegedly suffered under that other agreement as the result of an alleged breach of the LGIA. 47 Alta Wind and CalWEA claim that Article 18.2 allows recovery of lost profits for breaching the LGIA if the lost profits are derived from another contract between the same parties. 48 According to Alta Wind and CalWEA, no breach of the other contract is necessary for a party to collect lost profits from that contract under the LGIA. Alta Wind s and CalWEA s interpretation of Article 18.2 is clearly contrary to the plain meaning of its words as well as the Commission s clearly stated intention in Order No It is also illogical on its face. The proviso at issue clearly refers to damages for which a Party may be liable to the other Party under another agreement. In order for a party to be liable for damages under another agreement, there must be a breach of that other agreement. Alta Wind s and CalWEA s interpretation requires the Commission to ignore the section damages for which a Party may be liable to another Party. Indeed, implicit in Alta Wind and CalWEA s interpretation is the assumption that if Alta Wind had signed a power purchase agreement with a buyer other than SCE, Alta 47 Motion to Intervene and Comments of Pacific Gas & Electric Company, EL , at p. 4 (fld. Dec. 8, 2014). 48 Alta Wind Protest, at pp ; CalWEA Protest, at p

16 Wind would not be entitled to lost profits under the LGIA. This would lead to a situation where transmission owners would be subject to different liability standards depending on whether or not it had a power purchase agreement with the interconnection customer, defeating the entire purpose of Order No in creating a standardized LGIA. The notion that the Commission would treat transmission owners worse if they bought power from their interconnection customers defies logic, as it would encourage transmission owners to buy from more remote generators (incurring higher losses and possibly additional transmission charges). 2. Article of the LGIA Does Not Bar the Commission From Clarifying its Own Order Alta Wind asserts that the Petition requests the Commission to eliminate Article , 49 while CalWEA similarly asserts that SCE asks to limit the scope of that provision. 50 These arguments mischaracterize the Petition. SCE is not asking that the LGIA be modified SCE is asking the Commission to explain what it meant in issuing Order No whether the Commission, in imposing a uniform, nationwide limitation of consequential damages intended to bar recovery of loss profits on power sales under collateral agreements, or wished to leave that matter up to the courts to decide based on what constitutes consequential damages under each state's law. SCE explained in its 49 Alta Wind Protest at CalWEA Protest at 5. Article states: The validity, interpretation and performance of this LGIA and each of its provisions shall be governed by the laws of the state where the point of Interconnection is located, without regard to its conflicts of law principles. 16

17 Petition (at p. 4) that the differences in state law were the exact reason that the Petition was needed. Alta Wind contends that once the Commission imposed a limitation on consequential damages, only state law becomes relevant in deciding the scope of that limitation. 51 Given the rich history and discussion surrounding the purpose and scope of Order No s limitation on consequential damages, Alta Wind s suggestion that Article 18.2 should be interpreted under state law simply makes no sense. For example, Alta Wind s Protest itself inquires into the Commission s alleged intent in enacting that Article 18.2; it is simply not possible to rule on this issue without going back to Order No Also, under Alta Wind s proposal, each state would be free to rule on that limitation, applying the laws of its own state. However, the Commission already considered, and decided against, this exact type of piecemeal approach to limiting damages. Specifically, the Commission stated that it is because state liability statutes vary that we are prescribing a specific liability provision. The only way to logically reconcile Article 18.2 s limitation on consequential damages with Article , and the Commission s goal for reducing regulatory uncertainty, is to rule that Article does not bar the Commission from clarifying a question regarding the Commission s intent when issuing Order No Even assuming state law should apply here, the Commission (or even a state court) would still be able to look to Order No and Commission pronouncements 51 Alta Wind Protest at p Id. at pp

18 concerning its intent in adopting the provision to determine the scope of Article 18.2 for two reasons. First, notwithstanding Article , states may not disregard the Commission's intent in setting the terms of interconnection, which is a matter exclusively within the Commission's purview 53 Alternatively, state law typically permits consideration of the circumstances surrounding the development of particular contract terms in construing the contract. 54 This would include FERC s intent in issuing Order No C. Granting SCE s Petition will Remove Regulatory Uncertainty; Denying the Petition Will Increase Regulatory Uncertainty CalWEA asserts that SCE only seeks to address uncertainty in the current litigation and thus claims that it is impossible to judge whether granting the Petition will remove uncertainty because SCE has omitted the factual context of its current 53 See Southern California Edison Co. v. Public Utilities Com n, 121 Cal.App.4th 1303, (2004) (under the doctrine of field preemption, California may not supplement a utility's obligations under an LGIA by requiring the utility to advance the cost of network upgrades because this matter falls exclusively within the Commission's authority). 54 California Civil Code Sec ( A contract may be explained by reference to the circumstances under which it was made, and the matter to which it relates ); Code of Civil Procedure Sec ( For the proper construction of an instrument, the circumstances under which it was made, including the situation of the subject of the instrument, and of the parties to it, may also be shown, so that the Judge may be placed in the position of those whose language he is to interpret. ). SCE, respectfully submits, however, that the better approach would be for FERC to state that Article does not bar the Commission from clarifying the scope of Order No Although California state law would allow consideration of Order No. 2003, the laws of other states may not. 55 Compare Moss Development Co. v. Geary, 41 Cal.App.3d 1, 13, 115 Cal.Rptr. 736 (1974) (In interpreting an ambiguous instrument a state governmental agency created pursuant to its statutory authority, "the objects, purposes and intentions of that agency are part of the surrounding circumstances and are relevant."); Sierra Associate Group, Inc. v. Hardeman, 2009 WL at * 9 (Tex.App.-Austin 2009) (Where a standard form contract is promulgated by a state agency in a rulemaking process, it will be construed as an administrative rule; the court's "primary objective is to give effect to the agency's intent," and the court will "defer to an agency's interpretation of its own rule unless it is plainly erroneous or inconsistent with the rule." (Citations omitted)). 18

19 litigation. 56 CalWEA also argues that granting the Petition is inappropriate because granting it would not terminate the current litigation. 57 Like its other arguments, CalWEA s argument here mischaracterize the issues brought before the Commission. SCE is not seeking the Commission s guidance on the specific facts of the current litigation with Alta Wind. SCE is seeking interpretation and guidance on the terms of FERC s Order No and the pro forma LGIA, which is well within FERC s discretion. CalWEA s arguments echo those of a protestor in Nicole Gas Production Ltd. 58 In that case, the protestor argued that the a petition for declaratory order should not be granted because granting it would not resolve ongoing litigation between the parties. 59 However, the Commission rejected this argument, ruling that it was in the public interest and a proper exercise of its discretion to provide requested interpretations and clarifications of the tariff at issue in order to provide clarity for the parties and to promote uniform interpretation of these provisions. 60 Similarly, granting SCE s Petition would provide clarity for all entities required to comply with Order No and promote uniform interpretation of the LGIA. As discussed in the Petition and as evidenced by intervenor comments urging the Commission to grant the Petition, this issue clearly extends beyond the current litigation between Alta Wind and SCE. 56 CalWEA Protest at p Id. at FERC 61,328 (2003). 59 Id. at P Id. at P

20 IV. CONCLUSION WHEREFORE, SCE respectfully requests that the Commission take account of SCE s Answer, as set forth above, in ruling on the Petition. Respectfully submitted, /Jennifer L. Key/ Richard L. Roberts Mark L. Spitzer Jennifer L. Key Steptoe & Johnson LLP 1330 Connecticut Avenue, N.W. Washington, D.C (202) rroberts@steptoe.com mspitzer@steptoe.com jkey@steptoe.com /Gary Chen/ Robert J. Kang Gary Chen Southern California Edison Company P.O. Box 800 Rosemead, CA (626) robert.kang@sce.com gary.chen@sce.com 20

21 CERTIFICATE OF SERVICE I hereby certify that I have this day served the foregoing MOTION FOR LEAVE TO ANSWER AND ANSWER OF SOUTHERN CALIFORNIA EDISON COMPANY upon each person designated on the official service list compiled by the Secretary in this proceeding. Dated at Rosemead, California, this 23rd day of December, /Monica Romero/ Monica Romero Project Analyst SOUTHERN CALIFORNIA EDISON COMPANY 2244 Walnut Grove Avenue Post Office Box 800 Rosemead, California Telephone: (626)

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